Watson's Dairies v A G Lambert & Partners & Ors

In an application for an interim injunction requiring continuing supply of fungible goods, the court should apply the staged approach in American Cyanamid Co (No 1) v Ethicon Ltd, beginning with the merits and adequacy of damages. Where a properly functioning market permits replacement purchases, damages will ordinarily be an adequate remedy, even if replacement costs may threaten the applicant’s business. The court should be extraordinarily cautious before preserving supplies of fungible goods by injunction. Practical adequacy includes the realistic enforceability of a damages award. Commercial choices, delay in protecting the applicant’s position and the possibility of insolvency do not, without more, justify intervention in the market.

Watson’s Dairies Limited sought continuation until trial of an interim injunction requiring dairy-farming respondents to continue supplying milk under disputed Milk Purchase Agreements. The agreements contained contested pricing and termination provisions. The respondents had served notices purporting to terminate the agreements and had begun negotiating or concluding alternative supply arrangements with other processors.

An injunction had been granted on 30 September 2020 by Mr Mellor QC, sitting as a Deputy High Court Judge, after an ex parte-on-notice hearing. The return-date issue was whether that injunction should continue until trial or further order.

1. Outcome. The court declined to continue the injunction and discharged it immediately. The application failed because the second stage of the American Cyanamid Co (No 1) v Ethicon Ltd test was not satisfied.
2. The court gave the applicant the benefit of the doubt on the first stage. It found a good arguable case and/or serious issue to be tried concerning the construction and effect of the Milk Purchase Agreements, including the disputed pricing variation and termination provisions. It did not need to resolve whether the mandatory character of the injunction required a higher degree of assurance on the merits.
3. Damages were theoretically and practically adequate for the applicant. Milk was fungible, and the evidence established a functioning spot market from which replacement supplies could be obtained, albeit at greater cost. Applying the reasoning in VTB Commodities Trading DAC v JSC Antipinsky Refinery, the court held that injunctions preserving supplies of fungible goods should be granted only with extraordinary caution. The possibility that higher procurement costs might cause insolvency did not alter the prima facie position that damages were the appropriate remedy.
4. The applicant had known since June that the respondents intended to terminate the agreements. It could have sought earlier relief or arranged alternative supplies. Its commercial decision not to do so did not justify an injunction. Nor should the court intervene merely because the applicant’s group might decline to fund replacement purchases.
5. The court considered, additionally, the respondents’ position. An injunction could prevent them from performing more favourable contracts negotiated with other processors and could cause the loss of commercial opportunities whose value would be extremely difficult to quantify. Those matters reinforced the conclusion, although the court did not need to reach the later stages of the test. The cross-undertaking point was discussed on the assumption that the injunction had been wrongly granted, but the court did not need to determine it.

The judgment was a first-instance return-date decision concerning an interim injunction granted on 30 September 2020 by Mr Mellor QC, sitting as a Deputy High Court Judge. The injunction was discharged on 6 October 2020.